Case 6:12-cv-00855-RWS Document 419 Filed 02/02/16 Page 1 of 20 PageID #: 30536
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`IN THE UNITED STATES DISTRICT COURT
`FOR THE EASTERN DISTRICT OF TEXAS
`TYLER DIVISION
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`VIRNETX INC. AND
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`SCIENCE APPLICATIONS
`INTERNATIONAL CORPORATION,
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`Plaintiffs,
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`v.
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`APPLE INC.
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`Defendant.
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`
`§
`§
`§
`§
`§
`§
`§
`§
`§
`§
`§
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`Civil Action No. 6:12-cv-855
`LEAD CONSOLIDATED CASE
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`JURY TRIAL DEMANDED
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`
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`APPLE INC.’S RULE 50(A) MOTION FOR JUDGMENT AS A MATTER OF LAW
` ON DAMAGES
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`i
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`Case 6:12-cv-00855-RWS Document 419 Filed 02/02/16 Page 2 of 20 PageID #: 30537
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`TABLE OF CONTENTS
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`Page
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`TABLE OF AUTHORITIES ....................................................................................................... ii
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`I.
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`ARGUMENT ......................................................................................................................1
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`A.
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`Mr. Weinstein’s Damages Model Lacks Reliable Economic and Factual
`Predicates .................................................................................................................4
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`1.
`2.
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`3.
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`Mr. Weinstein’s per-unit royalty rates are not apportioned .........................4
`Mr. Weinstein failed to apportion for the value contributed by
`other licensed patents to VirnetX’s licenses ................................................7
`No reasonable jury could rely on the licenses as presented by Mr.
`Weinstein in determining a reasonable royalty ............................................8
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`B.
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`C.
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`D.
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`Mr. Weinstein’s Damages Model Violates the Entire Market Value Rule ............10
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`Apple is Entitled to a Partial Offset of Any Damage Award Due to
`Exhaustion and the Prohibition on Double Recovery ............................................12
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`No Reasonable Jury Could Find Damages in Excess of $23.8 Million,
`Based on the Record Evidence ..............................................................................13
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`II.
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`CONCLUSION ................................................................................................................14
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`i
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`Case 6:12-cv-00855-RWS Document 419 Filed 02/02/16 Page 3 of 20 PageID #: 30538
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`TABLE OF AUTHORITIES
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`Page
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`Cases
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`Aero Prods., Int’l v. Intex Recreation Corp.,
`466 F.3d 1000 (Fed. Cir. 2006)............................................................................................... 13
`
`Bowers v. Baystate Techs., Inc.,
`320 F.3d 1317 (Fed. Cir. 2003)............................................................................................... 13
`
`Commonwealth Sci. & Indus. Research Org. v. Cisco Sys., Inc.,
`No. 2015-1066, 2015 WL 7783669 (Fed. Cir. Dec. 3, 2015) ................................................... 4
`
`CPG Prods. Corp. v. Pegasus Luggage, Inc.,
`776 F.2d 1007 (Fed. Cir. 1985)............................................................................................... 13
`
`Ericsson, Inc. v. D-Link Sys., Inc.,
`773 F.3d 1201 (Fed. Cir. 2014)........................................................................................ passim
`
`Finjan, Inc. v. Secure Computing Corp.,
`626 F.3d 1197 (Fed. Cir. 2010)................................................................................................. 7
`
`Hanson v. Alpine Valley Ski Area, Inc.,
`718 F.2d 1075 (Fed. Cir. 1983)................................................................................................. 9
`
`Integra Lifesciences I, Ltd. v. Merck KgaA,
`331 F.3d 860 (Fed. Cir. 2003)................................................................................................... 1
`
`IP Innovation L.L.C. v. Red Hat, Inc.,
`705 F. Supp. 2d 687 (E.D. Tex. 2010) ...................................................................................... 8
`
`LaserDynamics, inc. v. Quanta Computer, Inc.,
`694 F.3d 51 (Fed. Cir. 2012)......................................................................................... 2, 7, 8, 9
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`Lucent Tech., Inc. v. Gateway, Inc.,
`580 F.3d 1301 (Fed. Cir. 2009)..................................................................................... 1, 3, 6, 9
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`ResQNet.com, Inc. v. Lansa, Inc.,
`594 F.3d 860 (Fed. Cir. 2010)............................................................................................... 6, 8
`
`Riles v. Shell Exploration & Prod. Co.,
`298 F.3d 1302 (Fed. Cir. 2002)................................................................................................. 2
`
`Transclean v. Bridgewood Servs., Inc.,
`290 F.3d 1364 (Fed. Cir. 2002)................................................................................................. 1
`
`ii
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`Case 6:12-cv-00855-RWS Document 419 Filed 02/02/16 Page 4 of 20 PageID #: 30539
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`TABLE OF AUTHORITIES (CONT’D)
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`Page
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`Uniloc USA, Inc. v. Microsoft Corp.,
`632 F.3d 1292 (Fed. Cir. 2011)................................................................................................. 2
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`Unisplay, S.A. v. Am. Elec. Sign Co.,
`69 F.3d 512 (Fed. Cir. 1995)..................................................................................................... 3
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`VirnetX, Inc. v. Cisco Sys., Inc.,
`767 F.3d 1308 (Fed. Cir. 2014)........................................................................................ passim
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`Whitserve, LLC v. Computer Packages, Inc.,
`694 F.3d 10 (Fed. Cir. 2012)..................................................................................................... 3
`
`Rules
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`Fed. R. Civ. P. 30(b)(6)................................................................................................................... 7
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`Fed. R. Civ. P. 50(a) ....................................................................................................................... 1
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`iii
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`Case 6:12-cv-00855-RWS Document 419 Filed 02/02/16 Page 5 of 20 PageID #: 30540
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`Defendant Apple, Inc. (“Apple”) respectfully moves the Court to grant judgment as a
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`matter of law (“JMOL”) pursuant to Federal Rule of Civil Procedure 50(a) on VirnetX’s
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`damages claims because VirnetX has failed to present legally sufficient evidence to support its
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`damages claims.
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`In the 417 Action, Mr. Weinstein applied a 1% royalty rate (based on the percentage-
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`based royalty rates in VirnetX’s licenses and licensing policy) to the entire market value of
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`Apple’s end products. VirnetX, Inc. v. Cisco Sys., Inc., 767 F.3d 1308, 1328 (Fed. Cir. 2014).
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`Although Mr. Weinstein claimed he had apportioned Apple’s revenues to reflect the value of the
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`patented technology by “us[ing] the base price at which each product was sold, excluding …
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`charges for additional memory sold separately,” the Federal Circuit disagreed. Id. In vacating
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`the damages award, the Court explained that “VirnetX cannot simply hide behind Apple’s sales
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`model to avoid the task of apportionment.” Id. at 1329. Despite this admonition, Mr. Weinstein
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`has once again presented an unapportioned damages model, this time translating those
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`percentage-based royalty rates to per-unit dollar figures. Instead of hiding behind Apple’s sales
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`model, this time Mr. Weinstein hides behind VirnetX’s licensing policy to avoid apportioning.
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`The Federal Circuit’s ruling is not so easily evaded, and no reasonable jury could rely on
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`VirnetX’s methodology to award damages.
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`I.
`
`ARGUMENT
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`The plaintiff bears the burden of proof as to the amount of damages. Lucent Tech., Inc. v.
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`Gateway, Inc., 580 F.3d 1301, 1324, 1335 (Fed. Cir. 2009); see also Transclean Corp. v.
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`Bridgewood Servs., Inc., 290 F.3d 1364, 1370 (Fed. Cir. 2002). Damages cannot stand if they
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`are supported only by “speculation or guesswork.” Lucent, 580 F.3d at 1335; see also Integra
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`Lifesciences I, Ltd. v. Merck KGaA, 331 F.3d 860, 872 (Fed. Cir. 2003), vacated other grounds
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`545 U.S. 193 (2005). Nor can they be based on expert testimony that is economically unsound
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`Case 6:12-cv-00855-RWS Document 419 Filed 02/02/16 Page 6 of 20 PageID #: 30541
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`or does not pass the Daubert test for reliability. Uniloc USA, Inc. v. Microsoft Corp., 632 F.3d
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`1292, 1315-18 (Fed. Cir. 2011); LaserDynamics, Inc. v. Quanta Computer, Inc., 694 F.3d 51, 67
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`(Fed. Cir. 2012); Riles v. Shell Exploration & Prod. Co., 298 F.3d 1302, 1311-13 (Fed. Cir.
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`2002).
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`As set forth below, VirnetX’s damages evidence failed, as a matter of law, to support the
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`reasonable royalty it requests that the jury award, because it is not based on sufficiently reliable
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`“economic and factual predicates.” LaserDynamics, 694 F.3d at 67 (quoting Riles, 298 F.3d at
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`1311). Specifically:
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`• VirnetX and Mr. Weinstein failed to offer any analysis showing that Mr. Weinstein’s
`damages model properly apportioned the incremental value of the patented
`technology from non-patented features in Apple’s accused iPhones, iPads, iPod
`Touches, and other devices.
` Instead, Mr. Weinstein points to Mr. Larsen’s
`unsupported ipse dixit testimony that a royalty rate of 1 to 2% of end product
`revenue is sufficiently low to only account for the incremental contribution of the
`patented technology in products with features beyond the patented technology.
`1/27/16 Trial Tr. at 139:12-140:3. Mr. Weinstein conceded that neither he nor
`Mr. Larsen presented any calculations to the jury to show how the apportionment was
`allegedly performed, and that he was uncertain about how the apportionment had
`allegedly been performed by VirnetX in designing its licensing policy. 1/28/16 Trial
`Tr. at 31:13-21. These bald assertions of apportionment without any economic or
`factual analysis are insufficient as a matter of law.
`
`• Mr. Weinstein failed to apportion the royalty amounts in the settlement agreements he
`relied upon in calculating damages to account for the value contributed by patents
`other than the patents-in-suit in these portfolio-based licenses. There is no dispute that
`VirnetX’s settlement agreements include licenses to patents not at issue in this
`litigation, and that those other patents contribute to the royalty amount. 1/28/16 Trial
`Tr. at 34:13-18. Nonetheless, Mr. Weinstein “didn’t make any adjustment” to
`account for the value contributed by these other patents, as required by controlling
`case law. Ericsson, Inc. v. D-Link Sys., Inc., 773 F.3d 1201, 1227-28 (Fed. Cir. 2014).
`
`• Mr. Weinstein’s damages model violates the Entire Market Value Rule (“EMVR”).
`Mr. Weinstein’s damages model is based on VirnetX’s alleged licensing policy and
`settlement agreements (excluding
`the Microsoft agreement), which apply a
`percentage-based royalty to end product revenue, an approach the Federal Circuit
`rejected in the 417 Action. At trial, Mr. Weinstein recast his rejected damages model
`by “translat[ing]” the percentage-based “royalty rates into a per-unit price,” but he
`failed to make any adjustments to the royalty rate to account for the fact that VirnetX
`is not entitled to a share of Apple’s end-product revenue. 1/27/16 Trial Tr. at 269:13-
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`2
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`Case 6:12-cv-00855-RWS Document 419 Filed 02/02/16 Page 7 of 20 PageID #: 30542
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`20. Ericsson, 773 F.3d at 1228. As in the 417 Action, Mr. Weinstein and VirnetX
`have not shown that the patented technology drives consumer demand and, thus,
`cannot rely on the entire market value of the accused devices as a matter of law.
`VirnetX, 767 F.3d at 1326. Nonetheless, they repeatedly suggested to the jury that the
`reasonable royalty should be based on a percentage royalty rate applied to end
`product revenue. 1/27/16 Trial Tr. at 127:25-128:5, 262:17-20 263:25-264:11;
`1/28/16 Trial Tr. at 14:23-18:15; 21:12-23; Weinstein’s Demo. 10.
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`• No reasonable jury could rely on many of the licenses Mr. Weinstein relied on in
`forming his reasonable royalty opinion. The licenses he presented as evidence of the
`license rates for the allegedly patented technology included settlement agreements for
`litigation avoidance; covered many more patents than the patents-in-suit; licensed
`products dissimilar to Apple’s accused products; and, in many instances, were for
`amounts significantly less than the cost to litigate VirnetX’s infringement allegations.
`See PX406–408, PX1085-86. Mr. Weinstein made no adjustments to render these
`licenses comparable to the license that would be negotiated in a hypothetical
`negotiation, and did not provide the jury with any instruction on how to do so.
`Ericsson, 773 F.3d at 1227-28.
`
`• No reasonable jury could rely on Mr. Weinstein’s methodology for calculating his
`averaged per-unit rates that he applies to accused units to arrive at his damages
`conclusions. Instead of applying a weighted average, Mr. Weinstein applies a
`“simple” average in which all six licenses are weighted equally, despite differences
`among them. 1/28/16 Trial Tr. at 47:14-25. By failing to apply a weighted average
`that accounts for the vastly disparate sales volumes and royalty amounts, and by
`excluding from two of his averaged per-unit rates the Microsoft license, which
`accounts for over 97% of VirnetX’s licensing revenue, Mr. Weinstein unreliably
`drives up his averaged per-unit rates. A reasonable jury could have considered only a
`weighted average of the six licenses.
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`“The patentee bears the burden of proving damages.” Whitserve, LLC v. Computer
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`Packages, Inc., 694 F.3d 10, 26 (Fed. Cir. 2012). Because VirnetX failed to present to the jury a
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`legally sufficient basis upon which to calculate damages, judgment as a matter of law is
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`appropriate. Lucent, 580 F.3d at 1336. Thus, VirnetX may not be awarded damages in excess of
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`$23.8 million for units of VPN On Demand in iOS 3-6, and no more than $20.6 million for the
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`other accused units in this case if VPN On Demand in iOS 7-8, FaceTime, and iMessage units
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`are all found to infringe. 1/28/16 Trial Tr. at 41:2-43:21, 89:7-90:8, 92:3-20; see Unisplay, S.A.
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`v. Am. Elec. Sign Co., 69 F.3d 512, 517 (Fed. Cir. 1995) (“[A] trier of fact must have some
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`3
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`Case 6:12-cv-00855-RWS Document 419 Filed 02/02/16 Page 8 of 20 PageID #: 30543
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`factual basis for a determination of a reasonable royalty. Any rate determined by the trier of fact
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`must be supported by relevant evidence in the record.”).
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`A. Mr. Weinstein’s Damages Model Lacks Reliable Economic and Factual
`Predicates
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`1.
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`Mr. Weinstein’s per-unit royalty rates are not apportioned
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`In patent cases, “[n]o matter what the form of the royalty, a patentee must take care to
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`seek only those damages attributable to the infringing features.” VirnetX, 767 F.3d at 1326.
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`Thus, “‘the ultimate reasonable royalty award must be based on the incremental value that the
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`patented invention adds to the end product.’ In short, apportionment.” Commonwealth Sci. &
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`Indus. Research Org. v. Cisco Sys., Inc., No. 2015-1066, 2015 WL 7783669, at *5 (Fed. Cir.
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`Dec. 3, 2015) (Ericsson, 773 F.3d at 1226) (emphasis added). Mr. Weinstein failed to do any
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`apportionment.
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`Mr. Weinstein’s damages model is based on six VirnetX settlement agreements.1 Five of
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`the six settlement agreements—Aastra, Avaya, Mitel, NEC, and Siemens (“IP Telephony
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`Licenses”)—contain percentage-based royalty rates applied to the end-product revenue of
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`licensed products. See PX406-408, PX1085 at Art. VI; PX1086 at Art. VIII. To obtain a per-
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`unit royalty for these licenses, Mr. Weinstein divided revenues received by units sold under these
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`licenses. 1/27/16 Trial Tr. at 269:13-271:10. Mr. Weinstein also relied on the 2010 Microsoft
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`license, which was a $200M lump-sum settlement agreement. Mr. Weinstein calculated a per-
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`unit royalty by dividing $200M by Microsoft’s U.S. sales, despite the fact that this license
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`explicitly included rights to foreign patents and covered Microsoft’s worldwide sales. 1/28/16
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`Trial Tr. at 38:8-39:25. These computations yielded per-unit rates for each license ranging from
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`1 As explained infra at 8-10, the Avaya, Aastra, Mitel, Siemens, and NEC licenses are not
`comparable to the hypothetical negotiation in this case.
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`4
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`Case 6:12-cv-00855-RWS Document 419 Filed 02/02/16 Page 9 of 20 PageID #: 30544
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`$0.19 to $2.26 per-unit. See PX1088.03. Mr. Weinstein then took the simple average of certain
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`of these per-unit royalty rates to arrive at a range of averaged royalty rates of $1.20 per unit to
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`$1.67 per unit.
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`Mr. Weinstein conducted no apportionment with respect to the accused products.
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`Mr. Weinstein testified that in deriving a per-unit royalty rate for the IP Telephony licenses, he
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`only included revenues and units related to Voice-over-IP (“VoIP”) phones, as opposed to other
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`products subject to those licenses. 1/27/16 Trial Tr. at 271:22-272:24; 1/28/16 Trial Tr. at 99:4-
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`13. But even assuming that his per-unit rates reflect the value of VirnetX’s patents in VoIP
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`phones, Mr. Weinstein admitted that “the Apple devices in this case are far more complex than
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`a VoIP phone” and that they included “[m]any, many, many more features than a VoIP [phone]
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`includes.” Id. at 19:13-15, 20:16-23; see also PX159 (iPhone 4 had “over 100 new features”);
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`PX166 (iPhone 4S had “over 200 new features”). Just as he did in the 417 Action,
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`Mr. “Weinstein . . . failed to apportion value between the patented features and the vast number
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`of non-patented features contained in the accused products.” VirnetX, 767 F.3d at 1329. Once
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`again, he “did not even attempt to subtract any other unpatented elements from the base, which
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`therefore included various features indisputably not claimed by VirnetX, e.g., touchscreen,
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`camera, processor, speaker, and microphone, to name but a few.” Id. at 1328. Thus, no
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`reasonable jury could rely on Mr. Weinstein’s unapportioned damages model to arrive at
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`damages in this case.
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`Mr. Weinstein seeks refuge in VirnetX’s licensing policy to try to excuse his failure to
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`apportion. Specifically, Mr. Weinstein claims that he “didn’t need to do that [apportionment]
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`calculation” because he “had the testimony . . . of Mr. Larsen on the VirnetX licensing policy.”
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`1/28/2016 Trial Tr. at 17:18-18:17. But Mr. Larsen’s testimony was only that VirnetX’s
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`5
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`Case 6:12-cv-00855-RWS Document 419 Filed 02/02/16 Page 10 of 20 PageID #: 30545
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`“policy” of applying a 1% to 2% royalty rate on the entire market value of end products takes
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`into account that some “licensees’ products have features in them over and above the patented
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`feature,” so “if you aggregate and have many products lumped into that particular product . . . the
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`royalty rate is lower for those particular products.” 1/27/2016 Trial Tr. at 139:8–19. Although
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`Mr. Weinstein testified that a 1% to 2% royalty rate is low enough because “it’s been fully
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`apportioned,” 1/28/2016 Trial Tr. at 15:3–8, he was “not certain” what analysis was done to
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`apportion the rate to reflect the contribution of VirnetX’s intellectual property to sales of the
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`final product. Id. at 31:13-21. Indeed, there is no such analysis in the record. Mr. Weinstein’s
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`bald conclusions do not constitute an economic analysis or substantial evidence a reasonable jury
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`could rely on. They are pure guesswork. Lucent, 580 F.3d at 1335.
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`In addition, FaceTime, iMessage, and VPN On Demand are distinct features that require
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`distinct infringement proofs. But Mr. Weinstein asserts that regardless of whether one, two, or
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`three of the accused features infringe, the royalty rate should be the same for a given device,
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`even though different features are accused of infringing different patents. 1/27/16 Trial Tr. at
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`310:22-311:6. Such a damages model does not reflect the “claimed invention’s footprint in the
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`marketplace,” ResQNet.com, Inc. v. Lansa, Inc., 594 F.3d 860, 869-71 (Fed. Cir. 2010), and
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`certainly does not reflect a valid apportionment. Further, VirnetX’s damages model makes no
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`attempt to apportion the value that its asserted patents contribute to the specific accused features.
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`Yet, as VirnetX’s own witnesses conceded, accused features such as FaceTime and iMessage use
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`many technologies other than those VirnetX claims to own. 1/26/16 Trial Tr. at 54:3-55:9;
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`1/27/16 Trial Tr. at 231:12-20, 233:3-10; 238:4-11; 1/28/16 Trial Tr. at 8:8-10. There is no
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`evidence that the footprint of VirnetX’s technology in VPN On Demand is equivalent to the
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`footprint of its technology in iMessage and FaceTime. And in fact, Microsoft paid a lower per-
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`6
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`Case 6:12-cv-00855-RWS Document 419 Filed 02/02/16 Page 11 of 20 PageID #: 30546
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`unit royalty on Skype units—which are more comparable to FaceTime and iMessage units—in
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`the 2014 Microsoft Amendment than it did on Microsoft units in the 2010 Microsoft Agreement.
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`1/28/16 Trial Tr. at 85:14-89:2. VirnetX and Mr. Weinstein performed no analysis of the
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`differences in the per-unit rates in those agreements. No reasonable juror could award damages
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`under Mr. Weinstein’s damages model.
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`Mr. Weinstein’s serial failure to apportion warrants judgment as a matter of law that no
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`reasonable jury could award damages based on Mr. Weinstein’s VirnetX Licenses Model.
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`LaserDynamics, 694 F.3d at 67.
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`2.
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`Mr. Weinstein failed to apportion for the value contributed by other
`licensed patents to VirnetX’s licenses
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`Although “licenses may be presented to the jury to help the jury decide an appropriate
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`royalty award . . . allegedly comparable licenses may cover more patents than are at issue in the
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`action, include cross-licensing terms, cover foreign intellectual property rights, or . . . be
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`calculated as some percentage of the value of a multi-component product.” Ericsson, 773 F.3d at
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`1227. “Testimony relying on licenses must account for such distinguishing facts when
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`invoking them to value the patented invention.” Id. (emphasis added); Finjan, Inc. v. Secure
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`Computing Corp., 626 F.3d 1197, 1211 (Fed. Cir. 2010). Mr. Weinstein admitted that he fails to
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`do so, and thus no reasonable jury can rely on Mr. Weinstein’s damages model to award
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`damages.
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`The IP Telephony Licenses on which VirnetX relies include between 16 to 19 U.S.
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`patents. PX406-408, PX1085-86 at Ex. A; 1/27/16 Trial Tr. at 161:2-22, 165:21-23, 166:15-18,
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`166:21-167:3, 168:8-11; 1/28/16 Trial Tr. at 34:1-18. Only four of those patents are asserted in
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`this litigation. And the 2010 Microsoft license included rights to 68 enumerated U.S. and foreign
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`patents and patent applications, as well as after-issued patents and patent applications. PX409 at
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`7
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`Case 6:12-cv-00855-RWS Document 419 Filed 02/02/16 Page 12 of 20 PageID #: 30547
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`Ex. A; 1/27/16 Trial Tr. at 172:2-4; 1/28/16 Trial Tr. at 39:1-16. VirnetX’s 30(b)(6) witness on
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`licensing testified that each of VirnetX’s patents was “equally important” and VirnetX’s “life
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`and blood.” 1/28/16 Trial Tr. at 33:6-20. And Mr. Weinstein himself admitted that licensed
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`patents beyond the patents-in-suit contribute value to the licenses. 1/28/16 Trial Tr. at 34:13-18.
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`Each license Mr. Weinstein relies on therefore includes far more patents than Apple
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`would be paying a royalty for in the hypothetical negotiation. Mr. Weinstein, however, made no
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`adjustment to account for the value of VirnetX’s other licensed patents, whether U.S. or foreign.
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`1/28/16 Trial Tr. at 32:17-24, 35:7-11, 39:17-25. Mr. Weinstein also admitted that the 2010
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`Microsoft License was a worldwide license, and that half of Microsoft’s sales occurred outside
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`the U.S., yet failed to include any of those units in the denominator when he was calculating his
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`effective per-unit rate for that license, thereby overstating the per-unit rate and inflating
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`damages. Id. at 38:13-25, 40:1-21. Mr. Weinstein’s failure to apportion raises the “fundamental
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`concern” that the royalty rate in those licenses may “overreach and encompass components not
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`covered by the patent,” thus overcompensating VirnetX. LaserDynamics, 694 F.3d at 70.
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`Mr. Weinstein’s opinions based on VirnetX’s licenses cannot support the damages award as a
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`matter of law.
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`3.
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`No reasonable jury could rely on the licenses as presented by Mr.
`Weinstein in determining a reasonable royalty
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`Non-comparable licenses cannot be relied on in a reasonable royalty analysis. See
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`LaserDynamics, 694 F.3d at 77-78; IP Innovation L.L.C. v. Red Hat, Inc., 705 F. Supp. 2d 687,
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`691 (E.D. Tex. 2010) (royalty rates where there was “no evidence that the alleged industry
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`agreements are in any way comparable to the patents-in-suit” are impermissible) (citing
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`ResQNet.com, 594 F.3d at 869-71. VirnetX’s IP Telephony Licenses are not economically
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`comparable to the hypothetical negotiation and a reasonable jury cannot rely on the rates
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`8
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`Case 6:12-cv-00855-RWS Document 419 Filed 02/02/16 Page 13 of 20 PageID #: 30548
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`Mr. Weinstein derived from them to arrive at a damages award in this case. See Lucent, 580
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`F.3d at 1325 (“[L]icenses relied on by the patentee in proving damages [must be] sufficiently
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`comparable to the hypothetical license at issue in suit.”).
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`First, Mr. Weinstein admitted that Aastra, Avaya, NEC, Siemens, and Mitel do not
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`compete with Apple. 1/28/16 Trial Tr. at 36:1-7. Second, the low number of units and royalties
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`paid under the Aastra, NEC, Siemens, and Mitel licenses makes them further unreliable for
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`determining a reasonable royalty in this case because the amounts paid under these agreements
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`are significantly lower than the cost of litigation—and each one of those licenses was entered
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`into to settle litigation. See LaserDynamics, 694 F.3d at 77-78. Mr. Weinstein agreed that “it’s
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`possible that the value of a license entered into in settlement of litigation may just represent the
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`value to the Defendant of making the lawsuit go away” because “litigations . . . are very, very
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`expensive.” 1/28/16 Trial Tr. at 54:10-17. Indeed, VirnetX does not even believe that Aastra
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`uses its patented technology, 1/28/2016 at 100:24-101:13, which further confirms that the
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`minimal payments under that license reflects the value of avoiding litigation, not the value of the
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`patented technology. LaserDynamics, 694 F.3d at 77; see also Hanson v. Alpine Valley Ski Area,
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`Inc., 718 F.2d 1075, 1078-79 (Fed. Cir. 1983) (“[S]ince the offers were made after the
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`infringement had begun and litigation was threatened or probable, their terms should not be
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`considered evidence of an established royalty, since license fees negotiated in the face of a threat
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`of high litigation costs may be strongly influenced by a desire to avoid full litigation.” (internal
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`citations omitted)). No reasonable jury could award damages based on these non-comparable
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`licenses.
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`• Aastra Settlement Agreement (PX406). The Aastra settlement agreement resolved
`VirnetX’s patent infringement claims against Aastra. See PX406 at 1; 1/27/16 Trial Tr. at
`123:24-124:17, 273:14-19; 1/28/16 Trial Tr. at 53:10-19, 54:1-17. To date, Aastra has
`paid a total of $41,409.64 in royalties under its settlement agreement, which covers 16
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`Case 6:12-cv-00855-RWS Document 419 Filed 02/02/16 Page 14 of 20 PageID #: 30549
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`U.S. patents and is significantly less than the cost to litigate VirnetX’s infringement
`claims. PX406 at Ex. A; 1/27/16 Trial Tr. at 125:3-8; PDX-301; 1/28/16 Trial Tr. at
`55:21-25. Mr. Weinstein testified that Aastra’s licensed products include desktop VoIP
`phones and that Aastra does not compete with Apple. 1/28/16 Trial Tr. at 36:1-7.
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`• Mitel Settlement Agreement (PX407). The Mitel settlement agreement resolved
`VirnetX’s patent infringement claims against Mitel. PX407 at 1; 1/27/16 Trial Tr. at
`123:24-124:17, 273:14-19; 1/28/16 Trial Tr. at 53:10-19, 54:1-17. To date, Mitel has
`paid a total of $449,743 in royalties under its settlement agreement, which covers 17 U.S.
`patents and is significantly less than the cost to litigate VirnetX’s infringement claims.
`PX407 at Ex. A; 1/27/16 Trial Tr. at 125:3-8; PDX-301; 1/28/16 Trial Tr. at 56:5-7.
`Mr. Weinstein testified that Mitel’s licensed products include desktop VoIP phones and
`that Mitel does not compete with Apple. 1/28/16 Trial Tr. at 36:1-7.
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`• NEC Settlement Agreement (PX408). The NEC settlement agreement resolved
`VirnetX’s patent infringement claims against NEC. PX408 at 1; 1/27/16 Trial Tr. at
`123:24-124:17, 273:14-19; 1/28/16 Trial Tr. at 53:10-19, 54:1-17. To date, NEC has paid
`a total of $58,411.88 in royalties under its settlement agreement, which covers 17 U.S.
`patents and is significantly less than the cost to litigate VirnetX’s infringement claims.
`PX408 at Ex. A; 1/27/16 Trial Tr. at 125:3-8; PDX-301. Mr. Weinstein testified that
`NEC’s licensed products include desktop VoIP phones and that NEC does not compete
`with Apple. 1/28/16 Trial Tr. at 36:1-7.
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`• Siemens Settlement Agreement (PX1085). The Siemens settlement agreement resolved
`VirnetX’s patent infringement claims against Siemens. PX1085 at 1; 1/27/16 Trial Tr. at
`123:24-124:17, 273:14-19; 1/28/16 Trial Tr. at 53:10-19, 54:1-17. To date, Siemens has
`paid a total of $250,859.05 in royalties under its settlement agreement, which covers 17
`U.S. patents and is significantly less than the cost to litigate VirnetX’s infringement
`claims. PX1085 at Ex. A; 1/27/16 Trial Tr. at 125:3-8; PDX-301; 1/28/16 Trial Tr. at
`56:1-4. Mr. Weinstein testified that Siemen’s licensed products include desktop VoIP
`phones and that Siemens does not compete with Apple. 1/28/16 Trial Tr. at 36:1-7.
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`• Avaya Settlement Agreement (PX408). The Avaya settlement agreement resolved
`VirnetX’s patent infringement claims against Avaya. PX1086 at 1; 1/27/16 Trial Tr. at
`123:24-124:17, 273:14-19; 1/28/16 Trial Tr. at 53:10-19, 54:1-17. To date, Avaya has
`paid a total of $7.5 million in royalties under its settlement agreement, which covers 19
`U.S. patents and is less than VirnetX has spent litigating this case. PX408 at Ex. A;
`1/27/16 Trial Tr. at 125:3-8, 136:20-22; PDX-301. Mr. Weinstein testified that Avaya’s
`licensed products include desktop VoIP phones and that Avaya does not compete with
`Apple. 1/28/16 Trial Tr. at 36:1-7.
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`B. Mr. Weinstein’s Damages Model Violates the Entire Market Value Rule
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`In the 417 Action, “Weinstein applied a 1% royalty rate, based on six allegedly
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`comparable licenses, as well as his understanding that VirnetX had a ‘policy’ of licensing its
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`Case 6:12-cv-00855-RWS Document 419 Filed 02/02/16 Page 15 of 20 PageID #: 30550
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`patents for 1-2%.” VirnetX, 767 F.3d at 1330. Mr. Weinstein’s 1% royalty rate was applied to
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`the entire value of Apple’s accused products. Id. at 1325. The Federal Circuit rejected
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`Mr. Weinstein’s model: “The law requires patentees to apportion the royalty rate down to a
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`reasonable estimate of the value of its claimed technology, or else establish that its patented
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`technology drove demand for the entire product. VirnetX did neither.” Id. at 1329.
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`Mr. Weinstein’s attempt to recast this rejected theory under the guise of “per-unit rates” in this
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`case should be denied.
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`Like in the 417 Action, Messrs. Larsen and Weinstein presented VirnetX’s alleged
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`licensing policy that includes a 1% to 2% royalty rate on the sale of licensed products. Over
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`Apple’s objection (see 1/27/16 Trial Tr. at 262:23-263:1), VirnetX’s witnesses repeatedly
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`testified about VirnetX’s licensing policy, using the following demonstrative:
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`1/27/16 Trial Tr. at 262:17-20 see also 127:25-128:5; 263:25-264:11; 1/28/16 Trial Tr. at 14:23-
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`18:15; 21:12-23. VirnetX’s presentation of its licensing policy improperly invites the jury to
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`apply a percentage-based royalty to the value of Apple’s accused products without meeting the
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`strict requirements of the EMVR. 1/27/16 Trial Tr. at 144:17-20; Trial Tr. at 1/28/16 at 10:4-17.
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`Case 6:12-cv-00855-RWS Document 419 Filed 02/02/16 Page 16 of 20 PageID #: 30551
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`VirnetX’s counsel even elicited testimony from Mr. Weinstein regarding the price of Aastra
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`servers ($12,000) and how the royalty sought for those servers was significantly less than what
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`VirnetX was seeking in this case. 1/28/16 Trial Tr. at 96:20-23. It is no answer for VirnetX to
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`say that the prices of Apple’s products have not been specifically referenced during trial—these
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`are consumer goods that jurors are readily familiar with, indeed that some of the jurors indica